Our goal is to help you focus on growing your business, not dealing with investors; we want to be as easy-to-use as possible.
When we are leading a round, we typically use a simple, standard investment instrument that functions similarly to a convertible note with a release valve; founders can easily buy us out. This enables you to choose the path that’s best for your company: pursue traditional VC accelerated growth without profitability, or become a profitable company organically and buy us out.
Here’s an overview of our typical structure:
|Company||[Company name] Inc., a [State] corporation|
|Purchase Amount||Total amount invested in the round. We prefer to be the lead investor.|
|Purchase Date||Anticipated date of funding investment.|
|Percentage||“_____%, subject to redemption as provided below”. The ownership % we convert into if a company chooses to raise a round or sell. We use a simple fixed % as it avoids much of the confusion and signaling associated with valuations or valuation caps. If a company raises, we convert our % ownership into preferred equity prior to the pending round and receive pro rata rights to maintain that % in that round.|
|Conversion Trigger||“$__,000,000 round of preferred.” The amount of follow-on financing that, if raised, triggers our conversion to equity. Such triggers typically range from as low as $500K to as high as $5M.|
|Redemption Start Date||“____ months after Purchase Date.” The date founders begin repurchasing our equity option with a percentage of gross revenue. These dates typically range from 12 to 35 months after the date of our investment.|
|Redemption Amount||“_____% of the Company’s gross revenue, as defined by GAAP.” Percentage of gross monthly revenue founders allocate to redeem our ownership position; ranges from 3-7%|
In the event that a company raises or sells, our terms function identically to a standard convertible note, with our then-current % ownership converted to equity or cash/stock (in the event of an acquisition). This conversion happens on a pre-money basis and retains a pro-rata right in the pending round to maintain our ownership %.
If a company foregoes further fundraising, they will begin to repurchase our ownership position, using a fixed percentage of gross revenue. Each redemption, therefore, reduces our ownership in the company and correspondingly increases the founders’ ownership. This allows the founders to repurchase up to 90% of our position via scheduled redemption payment, a single lump sum payment, or a combination of both — until they have redeemed 3X the Purchase Amount.
Here’s a summary of how our model compares with traditional VC:
|Factor||Traditional early-stage VC||Our Model|
|Autonomy and optionality||Initially high, but you almost always lose control over time. Typically locks you into taking more VC and growing your company according to VC needs||High|
|Time requirement||Typically 1-3 months of due diligence||Planned typically 2-4 weeks|
|Processing/ Legal costs||Legal costs typically $25K-$50K||Planned several thousand dollars|
|Cost of capital||Cost of VC funding to a unicorn CEO can easily be the equivalent of paying well over 100% annual interest||Low double digits|
|Typical business||Unprofitable business requiring ongoing VC subsidy||Business with clear roadmap to profitability|
|Ability to terminate||Expensive, difficult, and time-consuming||Easy, pre-negotiated option to buy us out|
|Financial management obligations||Low||Material, as you may have ongoing monthly payment obligations|
Our model is based on an open-source template from Fenwick & West and Indie.vc. To learn more about this model, see our overview series from Techcrunch: Revenue-Based Investing: A new option for founders who care about control.